Tag Archives: systems thinking

Out of the Crisis – Part 2

I am reading (again) Out of the Crisis by W. Edwards  Deming and his prescription for US businesses from our last crisis.  Let’s give US businesses a grade of pass, fail or incomplete for each of the 14 points.

1.  Create constancy of purpose for improvement of product or service.

Grade: Fail
Comments:  Dr. Deming asked us to not put the quarterly dividend ahead of the company existence decades from now.  Our search for bigger dividends in the short-term helped contribute to our current financial crisis.  We are still slaves to defacto purposes like budgets and dividends.  We judge management by what they can do for us in the short-term.

2.  Adopt the new philosophy.

Grade: Fail
Comments:  I never heard Dr. Deming once mention tools found in Lean, Six Sigma or Lean Six Sigma to be part of the new philosophy (other than control charts).  Many manufacturers are gone, some have adopted the new philosophy.  The largest part of the US economy is service and little evidence exists that we are still anything but command and control thinkers.

3.  Cease dependence on mass inspection.

Grade: Fail
Comments:  The mass inspection in manufacturing that Dr. Deming referenced is certainly better, but I suspect because they either had to because of competition or those manufacturers are gone.  Service industry is still full of this form of waste with inspections, re-inspections, reviews and double-checks.

4.  End the practice of awarding business based on price tag alone.

Grade:  Incomplete
Comments:  Manufacturing: Pass; Government: Fail; Service: Fail, especially when purchasing technology.

5.  Improve constantly and forever the system of production and service.

Grade:  Fail
Comments:  See comments for #1 and #2.

6.  Institute Training

Grade: Fail
Comments:  Dr. Deming is talking about training to understand the organization as a system or systems thinking.  Few organizations are viewed this way.  This is not scientific management style functional training.

7.  Adopt and institute leadership.

Grade: Fail
Comments:  The command and control style of management in force today is still the style of management.  Dr. Deming was clear that management by the numbers (Alfred P. Sloan), MBO, performance appraisals, work standards, etc. had to be replaced by leadership.

8.  Drive out fear.

Grade: Fail
Comments:  Decision-making is still in the hands of the manager, the worker has little say in the work they do.  Technology has been created to dumb them down and keep them in line even more.  Check you brain at the door.

9.  Break down barriers between staff areas.

Grade:  Fail
Comments:  OK, there are more birthday parties, balloon-kicking, pancake days and group hugs.  However, systems thinking is still missing and scientific management theory still prevails.  The end-to-end work is still segmented and managed that way.

10.  Eliminate slogans, exhortations, and targets for the work force.

Grade: Fail
Comments:  Ever walk through a call center and you will see lots of all three.  The targets one is killing our competitive position.

11.  Eliminate numerical quotas for the work force and numerical goals for management.

Grade:  Fail
Comments:  Are you kidding? . . . the worker has been torn down to the smallest iota and there is plenty of technology to allow this to happen. Sales still have quotas.  Management numerical goals are in the form of budgets and targets.

12.  Remove barriers that rob people of pride of workmanship.

Grade:  Fail
Comments:  As long as command and control thinkers separate the decision-making from the work and have a problem with the first 11 points we will fail.

13.  Encourage education and self-improvement for everyone.

Grade:  Incomplete
Comments:  Individuals that are intrinsically motivated are filling the void.  Encouragement is often lacking.

14.  Take action to accomplish the transformation.

Grade: Fail
Comments:  We never really started.

Obviously, this is my opinion.  What is yours?

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Targets are Killing US (US Business)

I am always amazed at what executives (senior and junior) do to “manage” their organizations.  Are they brain-washed into a command and control mentality?  Or maybe it is a gene that has not been mapped yet.  Regardless, targets are the principle tool that executives use.  Maybe it is something in the leadership development program.

Budgets become the basis of all decision-making.  Executives claim that this is to ensure shareholder value.  In reality, it creates more unstable systems and sub-optimal performance.  Middle managers stuck with objectives that if achieved (by all) don’t guarantee that the company will make money.  Business improvement based on managing costs will almost always increase them.

Measures become focused on targets that are related to productivity and activity instead of purpose.  Management edicts of these top-down measurements/targets usually result in cheating.  For example:

“When I was the corporate purchasing manager for an industrial distributor.  I had the opportunity to increase my bonus based on soemthing called GMROI (Gross Margin Return on Inventory).  I could more than double my salary based on a high gross margin and a low inventory level.  I was not able to effect gross margin (sales function), but I was able to lower the inventory around bonus time.  I achieved an 80% bonus one year, but almost put the company out of business.  We had no inventory, customers were pissed.  I achieved my target at the expense of the organization.”

Unless measures are related to purpose they have no use and the purpose has nothing to do with the top-down, “command and control” hierarchy.  People’s engenuity is engaged in survival, not business improvement.

A better way is to take a systems thinking view, starting from the outside-in (customer view) they can then begin to see waste in their current system.  Systems thinking leads to an approach that allows design against demand instead of demands from the executive suite.  As waste is removed, flow improves lessening costs and providing opportunities for growth (innovation).

A systems view creates a compelling case for change and better design of work, measures and the elimination of targets.  Why eliminate targets?  A lot of reasons . . . they distort the purpose of the organization, create sub-optimization, prevent cooperation, promote cheating, and are typically focused on activity (wrong measures).

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Out with the Old and In with the "New" Systems Thinking

will be the first to tell you to remain skeptical of any “new” thinking.  However, what we have here is not “new” per se.  Our prevailing management style in the US is born from Frederick Winslow Taylor called “Scientific Management” that gives us the structure of functional specialization of work (assembly line).  This original thought has been the staple of our management philosophy from the late 1800s to present.  A time period that spans the invention of the Zepplin, teabags and the first flight of the Wright Brothers to walking on the moon and the iPod.

Nothing changed much until the American W. Edwards Deming was successful in post WWII Japan in the 1950s in what would become known as the Japanese Industrial Miracle.  All of a sudden the US had a staunch competitor in manufacturing.  Add to this “new” thinking Taiichi Ohno and the Toyota Production System, and we have a whole new management system.

When you look at service organizations (private and public sector) you will find precious few that have ever tried such “innovative” thinking.  The list is long as to why . . . competition (no one else pressuring service organizations), “we’ve always done it this way” thinking, lack of understanding, unwillingness to give up control, technology, etc., etc.  For what ever the reason, not much has changed in management since Frederick Winslow Taylor.  Business Improvement programs (Lean Six Sigma, TQM and many others) have become more of the same.  However, “new” thinking challenges this stale sameness.

The economy has changed now.  Maybe we need to be looking for better ways.  My continual search for better methods has led me back to Deming and Ohno. Instead of tools in our continual (continuous) improvement, we need new methods and to change thinking.
To read more on systems thinking with practical exercises, I would urge you to read the Fit for the Future management articles (six in all).  These articles are good reads for your organizational change management and leadership programs.
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Command and Control Assumptions Challenged

Systems thinking requires us to change our thought process.  Moving from scientific management theory but what does it require us to achieve this change?  Business improvement does not come without a change in thinking.

There are many assumptions that command and control organizations believe are “truths.”  American businesses love these “truths” and manage by them, but they almost always make service worse and increase costs.  Let’s look at my favorite 11:
 
Assumption #1:  To achieve business cost reductions, there is a trade-off between costs and good service.  I can have one or the other, but not both.
Reality #1:  Good service always results in lower costs.
 
Assumption #2:  Managing costs and making budgets is the way to manage an organization.
Reality #2:  Managing costs and budgets is purely “keeping score” and managing with these lagging measures is like driving a car looking out the rear view mirror.  Creating value for customers is the purpose of the business.  By managing costs and budgets we will always increase costs and decrease service.

Assumption #3:  Using targets and incentives helps improve profits.
Reality #3:  This is the evil twin of assumption #2.  In the 1930s at GM, it was Alfred Sloan who created “management by the numbers” as he saw it as inappropriate that executives should be involved in operations.  The defacto purpose becomes making the numbers . . . and not creating value for customers or  improving the flow of work. Targets are usually tied to incentives and at best sub-optimize the system (one area is rewarded at the expense of another).  An example is the sales department with its quotas and commission schemes that create an “all about me” attitude where the commission is achieved at the expense of the organization with price-cutting and being unable to deliver what is sold.
 
Assumption #4:  Outsourcing will decrease my costs.
Reality #4:  The most likely department to be outsourced is the call center.  The benefit is that transaction costs are lowered based on a production mentality (scientific management).  One assumes all demand is something to be worked, when in reality the failure demand (calls we don’t want) are outsourced as waste.  With failure demand running anywhere from 25 – 75% of phone calls (depending on industry), doesn’t it make sense to work on failure demand and its elimination?  
 
Assumption #5:  The first thing to do is standardize a service process to improve it.
Reality #5:  Without a full accounting of customer demand it is impossible to know if a process should be standardized.  Service has greater variety in demand than manufacturing (one reason why lean manufacturing doesn’t work for service).  I have seen many organizations merge companies to a standard product without first understanding such variety, and this always leads to worse service and increased costs.
 
Assumption #6:  “Economies of scale” will make my service less expensive.
Reality #6:  That is why companies merge so this must be true.  I have listened to banking pundits talk about the impending merger of banks for “economies of scale.”  If that is the reason, I hope that banks never merge.  “Economies of flow” will trump “economies of scale” every time and if that wasn’t true Toyota would never have been able to compete against the US car companies because the US had all the volume after WWII.  Prepare for worse service from the Delta/Northwest merger as the “bean counters” try to lower costs . . . hard to imagine it can get worse.
 
Assumption #7:  Splitting tasks between front and back offices is a good design of work.
Reality #7:  The design of work between front office and back office (and possibly several middle offices ) rings of the functional specialization of work. This is an inefficient design of work that almost all US service organizations have.  Understanding the customer demand, value and the flow of work will lead you to a better design, lower costs and better service.
 
Assumption #8:  Shared services results in lower costs.
Reality #8:  Without IT we could not share services.  The fact we have IT does not mean that we should share services.  In many cases we are sharing call centers or back office functions which may institutionalize waste (and usually does).
 
Assumption #9:  There is one “best practice.”
Reality #9:  No, there isn’t . . . there is always a better way to do things.  A best practice assumes one best way for all to copy.  An organization should never copy as each system has a unique set of customer demands and culture. 
 
Assumption #10:  If I spend more on IT, my costs will go down.
Reality #10:  Unfortunately, I typically see costs go up where IT becomes entrapping rather than enabling.  Seems like all the big IT organizations are driven by making sales rather than adding value.  Better approach: We must first understand our system (perform “check”), improve and then pull technology.  See the article Is IT Bugging You? 
 
Assumption #11: Improvement of service takes a long time.
Reality #11: No, any change management or continual improvement program taking years to show results should be discarded.  It usually means that rationalization and coercion are in place. An executive once informed me that “the improvement program had finally started to take hold after 3 years and the people that were left (after many rounds of purging) were finally starting to get it” . . . this is coercion.  Too many careers lost and brains tortured for something that can be easily gained with better systems thinking.

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Death by Call Center

I am always fascinated by the actions of call center management efforts to attain cost reductions.  Bank management efforts are no exception. 

At a large customer service (call) center for a tier one (large) bank I spent time listening to some phone calls and understanding what customers hear when they reach the bank’s IVR (Interactive Voice Response) system.  I started with the IVR system and listened to all 8 options and none of the options allowed the customer to talk to a service representative. The exception was the customer who wanted to open a new account or loan.  The amount of button pushing required to get to a person by listening to their “tree of options” was mind boggling.  A person calling in with a problem had to follow a path that had no end.  I was assured by the call center manager that this was saving them money . . . huh?
 
Next, I started to listen to value calls (open account and loans), but those lines were being clogged by the customers who had problems as the customer had figured out from the IVR that the only way to talk to a person was to hit the option for opening a loan or an account.  Customers have a way of figuring things out to get what they need.  The really interesting part is that the executives were tracking the new account and loan calls and wondered why they were getting so many calls to open accounts and loans but not very many accounts or loans were being made in proportion to the calls.  The data from their reports didn’t tell them what was really happening (calls were problems not sales).
 
The executives could only look in the mirror as the source of the problem.  They put in the IVR system to “save money.”  I suspect it cost them money not only for the IT but for the customers they lost.

The IVR systems have created a whole sub-culture culminating in a website to tell you how to speak to a person at major service organizations.  Check out the website www.gethuman.com.  Customers can be very creative, but why make it so hard to get value?
 
Some management articles to delve deeper into Systems Thinking and better methods for call centers.  They include: Transforming Call Center Operations, Design Against Demand, A Better Way of Motivating People, A Better Way of Thinking about Technology, Better Thinking about Demand, and Better Thinking about Managing People.

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Interview with a Reporter

I am being interviewed for an article today.  I thought I would blog the questions and my response for preparation.  Here are the questions we will discuss and my corresponding answers:

Q1:  What are the business issues that typically drive companies to set up call centers?

A1:  Costs – The idea is all work on telephones should be handled in one place to get economies of scale.
Improve Service – However, this is typically translated to mean “standardized service.”  Standardizing service makes service worst (not better) because the system is not capable of absorbing the variety of demand that customers receive in service.  Creating a management paradox:  Failure demand increases (meaning customers have to keep calling to get what they want).

Q2:  What types of mistaken assumptions or arguments do you see used in justifying this move?

A2:  3 Big Mistakes

  1. Treating all works as units of production (like manufacturing).  This means we don’t distinguish between demand we want (value demand) and demand we don’t want (failure demand).  Failure demand in call centers runs from 25% to 75% (sometimes higher).
  2. Believing workers can be held accountable for the work they do, when the system (work design, technology, management, measures, etc.) is responsible for 95% of the variation in performance and only 5% is attributable to an individual.
  3. Managers act in ways that inhibit the systems ability to absorb variety (e.g., scripts, adherence, quality monitoring, AHT, etc.)

Q3:  What are the pros and cons of serving customers via a call center in your view?

A3:  Thinking from a customer point of view . . . If you design the call center to provide service the customer will love it and that is wholly a different approach then sending calls to get economies of scale.  To achieve this an organization has to ignore the standard call center mantra of AHT, GOS, etc. and instead learn how to serve customers at the first point of contact.  It means making the call center agents “smarter” not dumbing them down with technology and scripts.  Only people can absorb the variety of demand in service.

Q4:  What are the most common mistakes made in the way call centers are set up?

A4:  See Q4 above and . . .

Work design – Treating all demand as work and managing the call center as a separate function instead of part of the system.  Customers view their demands end-to-end . . . organizations do not.

Outsourcing the organizations failure demand or not accounting for an organizations failure demand – Why pay to have failure demand as part of your outsourcing strategy and why keep having failure demand at your call center if you keep it in-house.

Q5:  What should businesses being doing instead?

A5:  Understanding the nature of demand on their system (the type and frequency of demand and the value and failure of that demand).

Designing roles to create value and providing training on demand to increase one-stop resolution or increase flow by optimizing the value work and eliminating waste.

Redesigning the role of call center management to act on the system rather than the worker.  This will require redesigning our leadership strategy and development.

In two words . . . Systems Thinking.

Add lib question from the reporter:  Do you believe you are “spitting in the wind?”
Maybe . . . but if I am unsuccessful where do I work?  The US doesn’t manufacture much anymore, because we didn’t listen to Deming after WWII.  If service is poor, what is left?

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My Brand of Insanity – What is it? or What it is.

My brand of insanity can be characterized as a management paradox – a different way of thinking if you will.  I personally have been  known as:

  • The sand in the oyster
  • The note that goes sour
  • The ant in the picnic
  • The fly in the ointment
  • The snake in the woodpile
  • The hitch in the giddy-up (my wife’s favorite)
  • The pain in the neck
  • The run in the stocking
  • The snag in the zipper
  • The crimp in the writing
  • The hole in the sidewalk
  • and the gum on the shoe.

A tag not aspired to . . . but one that goes with the territory.

See I abhor bad service.  Not because of the employees that are typically blamed for bad service, but because of the systems they work in.  Let’s refer to them as command and control systems.

What is a command and control system?
Organizations that have a top-down hierarchy, work designed in functional areas (scientific management born from Frederick Winslow Taylor), decision-making separated from the work (from Alfred P. Sloan), the use of measures with targets (budgets, activity, productivity, standards, etc.) in management decision-making.

What organizations use the command and control management style?
Well, let’s see.  I would say just about every red-blooded U.S. service organization (public and private sector).

So what is wrong with command and control management?
It doesn’t work very well.  Not anybody’s fault, it is just the way we have all learned to manage.  The problem is we haven’t changed our management methods in over 100 years.  Are we dinosaurs or what?

Are there better methods?
Yes, and I will reference it as “systems thinking” in future blogs.  A combination of W. Edwards Deming, Taiichi Ohno and intervention theory.

What’s the difference between command and control vs. systems thinking?
Every thing that you have learned from scientific management theory and change management programs . . . do the opposite.  OK, that might be a little severe, how about 95% opposite.

I hope you will find my blogs challenging, controversial, infuriating, and enlightening.  My aim is to achieve this by making you curious to learn more.  It’s my only hope . . . before the people in white uniforms find me.

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